What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes

By Youssef Benzarti, Dorian Carloni, Jarkko Harju, Tuomas Kosonen. Journal of Political Economy, 2020

158 citations recorded by the source corpus.

This paper provides evidence that prices respond significantly more strongly to increases than to decreases in value-added taxes (VATs). First, using two plausibly exogenous VAT changes, we show that prices respond twice as much to VAT increases as to VAT decreases. Second, we show that this asymmetry results in higher equilibrium profits and markups. Third, we find that firms operating with low profit margins are particularly likely to respond asymmetrically to VAT changes. Fourth, these asymmetric price effects persist several years after VAT changes take place. Fifth, using all VAT changes in the European Union from 1996 to 2015, we find similar levels of asymmetry.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/368ca0096995fbb9dc42ba935cd70f635ddcc24c

Citations in the corpus

• Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden (2019, unknown): “Studying whether the effects of the repeal are symmetric to the effects of the tax cut will be interesting (in light of compelling new evidence of asymmetric responses to tax increases versus decreases by Benzarti et al. 2017).”
• Who Really Benefits from Consumption Tax Cuts? Evidence from a Large VAT Reform in France (2016, unknown): “United Kingdom cost 12.4 billion pounds. This paper sheds light on the incidence of VAT cuts and finds that they mostly benefit firm owners through increased profits. Empirical studies on tax incidence have provided limited evidence on the effects of VAT changes on outcomes other than prices. Primar”